What Lodi Can Do About Its Budget Gap
What Lodi Can Do About Its Budget Gap
LodiEye — May, 2026
A practical look at the categories of tools available to address Lodi's structural and cyclical budget pressure — what each one actually solves, who must approve it, and what it costs in the long run.
When Lodi's budget shortfall comes up at Council meetings or in conversation around town, the choices usually get framed as just two: cut services and staff, or raise taxes. Both are real options, but they aren't the whole list. California cities have a substantially broader toolkit, and most of those tools sit between "cut" and "tax" rather than alongside them.
This report walks through what's actually available. We cover five categories of tools — plus an important clarification about Lodi's pension reserves, which often get described inaccurately in public discussion. For each tool, we cover what it solves, who has to approve it, and what it costs in the long run. None of these tools fixes Lodi's budget gap by itself, and several that look attractive at first turn out to carry hidden costs. But taken together, the categories describe what the City can actually do — and that's a better starting point for a public conversation than a forced choice between cuts to services or city staff and increasing taxes.
Sizing the gap
Before walking through the tools, it helps to know how big the problem actually is. The City's published 5-Year Forecast (FY 2025-26 Adopted Budget Book, page 39) projects the following annual gaps between General Fund revenue and expenses. The word "structural" simply means these gaps recur every year, not just during a bad economy — they are built into the long-term math.
| Fiscal year | Annual budget gap | % of FY 25-26 General Fund | Running total |
|---|---|---|---|
| FY 2025-26 | $0 adopted balanced* |
0.0% | $0 |
| FY 2026-27 | $1.63M | 1.8% | $1.63M |
| FY 2027-28 | $995K | 1.1% | $2.62M |
| FY 2028-29 | $972K | 1.1% | $3.60M |
| FY 2029-30 | $945K | 1.1% | $4.54M |
| FY 2030-31 | $930K | 1.0% | $5.47M |
| FY 2031-32** | $915K | 1.0% | $6.39M |
Sources: City of Lodi FY 2025-26 Adopted Budget Book, page 39 (5-Year General Fund Forecast). *The FY 2025-26 budget was adopted balanced. The February 2026 mid-year report subsequently flagged sales tax revenue coming in about $1.01 million below what the budget assumed, which the City has been managing through expense reductions during the year. **The FY 2031-32 number is a one-year extrapolation past the City's official 5-year forecast.
Five years of these gaps add up to about $5.5 million — roughly 6% of one year's General Fund, or about 79% of the City's Economic Reserve ($6.9 million). Adding the FY 2031-32 year brings the seven-year total to about $6.4 million, which is roughly the size of the Economic Reserve and the Catastrophic Reserve combined. To put the FY 2026-27 gap of $1.6 million into terms that compare to familiar parts of the City budget: it's about 5% of what Lodi spends on the Police Department in a year, about 8% of what it spends on the Fire Department, or roughly 11 times what the General Fund contributes to the Library. None of these figures is catastrophic on its own. But they compound year over year. Each unaddressed year either drains a reserve, defers maintenance, or pushes a harder decision into the next budget cycle. And because the gaps are structural, they don't go away when the economy improves.
That forecast is one possible path, built on a set of standard assumptions about how things will go. Revenues are assumed to grow at the rates the City has historically seen (around 3-5% per year across the major sources). Expenses are assumed to grow at the rates already baked into existing contracts and pension agreements (around 2.5-5% per year across the main categories). CalPERS investments are assumed to perform as expected. And the Council is assumed to make no major policy changes.
What actually happens will depend on factors the forecast doesn't try to predict. How do the local wine and agriculture industries hold up? What happens to fuel prices? Do the new Economic Development Strategic Plan and Downtown Specific Plan deliver the revenue they're projected to bring in? How do CalPERS investments perform in any given year — remembering that one bad year creates new pension costs the City has to pay back over the next 20 years? And what does the Council choose to do from the toolkit below?
The categories that follow are how the City can move within that range — closing the gap, or letting it widen, through specific actions. No single tool is large enough to close the structural gap alone. The realistic path involves combining several of them and accepting that some close gaps faster than others.
Cash on hand: reserves and one-time savings
The most visible category is reserves — money the City has set aside in various accounts. The May 6, 2026 Council Study Session reported $282.9 million in total city cash and investments as of March 31, 2026, but most of that is restricted to specific purposes (water, electric, sewer, capital projects, debt service, internal service funds) and is not legally available to plug a General Fund operating gap. The actual General Fund reserves that could be used for operating purposes are about $13.8 million across two purpose-designated reserves, plus the Pension Stabilization Fund.
Each reserve has a specific purpose, requires a different Council vote to access, and has different rules for when it can be used. The table below summarizes the General Fund-relevant reserves, with balances from the FY 2025-26 Adopted Budget Book.
| Reserve | Purpose | Projected balance (FY 27-28) | Authorization | When it can be used & how it gets refilled |
|---|---|---|---|---|
| General Fund Catastrophic Reserve | Money set aside for disasters and major emergencies | $6.9M | Typically requires a 4-of-5 Council supermajority under standard California practice; Lodi's adopted reserve policy controls the exact threshold | A Governor's or Presidential disaster declaration, state or federal emergency, documented catastrophic event (earthquake, major fire, flood, infrastructure failure), or public health emergency. Must be refilled in full per the adopted policy. |
| General Fund Economic Reserve | Money set aside to ride out a temporary revenue drop (like a recession year) | $6.9M | Typically a simple Council majority vote; meant for temporary economic dips, not emergencies | A one-time revenue shock or recession year. Refilled over the next two to four years as conditions return to normal. |
| Measure L Catastrophic Reserve | Disaster cushion for Measure L-funded services (police, fire, parks) | $742K | Same threshold as the General Fund Catastrophic Reserve, plus the action must comply with Measure L spending rules | A catastrophic event affecting police, fire, or parks. Refilled from the ongoing Measure L sales tax revenue. |
| Measure L Economic Reserve | Cushion for temporary drops in Measure L sales tax revenue | $742K | Same threshold as the General Fund Economic Reserve, plus Measure L spending rules | A temporary Measure L revenue dip or sales-tax-base contraction. Refilled from ongoing Measure L revenue. |
| Pension Stabilization Fund (PARS Trust) | Reserve to help cover rising CalPERS pension costs when they exceed what the General Fund can absorb | $15.5M projected to drop to $10.9M by FY 30-31 |
Council policy threshold (lowered by the Finance Committee from 80% to 70% funded in February 2026) | When the city's CalPERS funded ratio drops below the threshold and pension bills exceed General Fund capacity. The City has the option to contribute when conditions allow; none have been made in FY 22-23 through FY 24-25. |
Sources: FY 2025-26 Adopted Budget Book reserve trajectory; February 2026 Finance Committee minutes; May 6, 2026 Council Study Session (Item G.7). Balances shown are FY 2027-28 projections; current balances differ. Lodi's adopted reserve policy and the Municipal Code govern the actual authorization thresholds, qualifying conditions, target levels, and refilling formulas. The descriptions above reflect typical California municipal practice; Lodi's specific policy controls.
Three things about the table are worth noticing. First, reserves are one-time money — using them to cover an annual gap drains the reserve rather than fixing the gap, which means every draw needs to be paired with a longer-term fix or it just delays the problem. Second, the Economic Reserve is the natural first place to look for cushioning a tough budget year, but its $6.9 million could only cover four or five years of the projected gap if it were fully drained — and that would leave nothing for the actual recession the reserve was built to weather. Third, the Catastrophic Reserve is deliberately harder to access; using it for a structural budget gap (rather than a real emergency) would conflict with the reserve's purpose and standard California municipal finance practice.
A second one-time category is capital deferrals — pushing scheduled vehicle replacements, building maintenance, or equipment purchases into a later year. Lodi has used this approach significantly in FY 2026-27, eliminating the Facility Maintenance Fund ($2.7M), reducing the Fire Vehicle Replacement Reserve to a simpler year-by-year funding model ($1.5M), and eliminating the Fire Equipment Replacement Reserve ($132,600) at the May 6, 2026 Study Session. These moves free up operating cash now, but they build up deferred maintenance — work that typically costs more to address later than it would have cost to fund on schedule. A third one-time category is asset conversions. For example, the Department of Water Resources peaker plant purchase option (about $11.2 million in FY 2026-27) would convert the City's existing $560,000 in annual lease revenue into a one-time asset purchase. The trade-off in every one-time move is the same: a chunk of cash today, in exchange for either losing a permanent income stream or building up a future obligation.
Two pension reserves, two sets of rules
There's a common mix-up about Lodi's pension reserves. People often talk about "tapping pension reserves" as if there's one pot of money. There are actually two, and they work very differently. One is locked away by the state constitution and cannot be touched. The other is locally controlled and can be used — with some important limits. Getting this wrong leads to public discussion that proposes options that aren't actually on the table.
CalPERS trust assets cannot be reached. The California Public Employees' Retirement System (CalPERS) holds the pension money for hundreds of California cities and counties, including Lodi. The state constitution (Article XVI, Section 17, added by voters in 1992 as Proposition 162, the "California Pension Protection Act") gives the CalPERS Board sole responsibility over that money, with a constitutional duty to act only in the interest of plan members and retirees. The Public Employees' Retirement Law (Government Code Section 20000 and following) puts the same rules into state statute. In practical terms: Lodi does not have a separate account at CalPERS that the City can withdraw from. The money Lodi sends in goes into one big shared investment pool covering all member agencies. Lodi's share is tracked as a share of the total benefits owed to current and future retirees, not as a cash balance the City can draw on. Even if Lodi were fully overfunded, the only result would be lower required contributions in future years, not a refund. Around 2012–2014, during the Stockton bankruptcy period, several California cities tested whether there were any legal ways around this constitutional wall. None of them worked. For budget purposes, the CalPERS bill is a fixed cost — the City has no choice about whether to pay it, and the amount is set by the CalPERS Board, not by Lodi.
The Pension Stabilization Fund is a separate account that Lodi controls. Lodi's Pension Stabilization Fund (sometimes called the PARS Trust, after Public Agency Retirement Services, the firm that administers it) is a different kind of trust under a different law — specifically, Internal Revenue Code Section 115, which lets local governments set aside tax-exempt reserves for "essential government functions." Unlike CalPERS, the PSF holds money that belongs to Lodi and is governed by the City's own policy. The Finance Committee lowered the PSF distribution threshold from 80% to 70% funded in February 2026. Lodi's combined CalPERS funded ratio is currently 63.1%, well below that threshold, so the PSF is eligible for use under the City's own policy right now. The fund earns about 6.25% annually under its current investments.
Three ways the PSF can be used to help the General Fund. First, the PSF can pay CalPERS directly: PARS sends money straight to CalPERS on the City's behalf, which reduces the General Fund's pension bill that year and frees up the equivalent General Fund cash for other operating needs. This is the approach in use now, with projected draws of $2.3–$2.5 million per year that take the PSF balance from $15.5 million (FY 27-28) down to $10.9 million (FY 30-31). Second, the City can pay CalPERS in full from the General Fund and then have PARS reimburse the General Fund. The net effect is the same as the first method; the choice between them comes down to cash flow timing or accounting preference. Third, the City could draw the PSF down faster — for instance, $3.0–$3.5 million per year for one or two transition years — to ease a particularly tight budget cycle. The trade-off is obvious: faster draws exhaust the fund sooner, leaving less cushion for the next CalPERS investment downturn.
What the PSF cannot be used for. The trust agreement legally restricts PSF money to pension and other post-employment benefit costs. PSF dollars cannot be moved to road repair, public safety equipment, library hours, or any other General Fund use directly. But here's the practical reality: money is fungible. When PSF money pays a CalPERS bill, the General Fund cash that would have made that payment is now free for other uses. That's actually how the PSF helps the General Fund — not by sending money to road repair, but by freeing up General Fund cash that would otherwise have gone to CalPERS.
The trade-off no one is talking about enough: The PSF was designed to do two jobs at the same time — cushion the ongoing pension cost increases the City already knows about, and serve as a reserve for an actual CalPERS market downturn. Lodi's current draw schedule consumes the PSF on the first job, leaving roughly $10.9 million by FY 2030-31 for the second. If CalPERS has a bad investment year during that period (a -10% return would create about $20 million in new pension costs that the City has to pay back over 20 years), the remaining PSF balance won't fully cover the new bills. The fund becomes a partial buffer rather than a full one — a reasonable choice given the current budget pressure, but with reduced protection against the next downturn.
Bringing in revenue without raising taxes
Several ways to bring in more revenue don't require new taxes. User fees can be raised without voter approval as long as each fee reflects the actual cost of providing the service and isn't padded to subsidize unrelated programs. Building permits, planning review fees, ambulance charges, recreation program fees, parking enforcement, false alarm fees, and similar cost-recovery charges all fall here. The Council can approve increases by a simple majority, but each fee is capped at what it costs the city to deliver the service. That's a meaningful tool, but a bounded one.
Interfund transfers are another lever. Lodi's General Fund already receives about $11.5 million per year transferred in from other funds — mostly the Electric Utility's "Payment In Lieu Of Taxes" (PILOT) and overhead reimbursements from the water and sewer enterprise funds. The Council could revisit these transfer amounts. But there's a legal limit: if a transfer rate exceeds the actual cost of services the General Fund provides to the utility, it can be challenged as a hidden tax under Proposition 218. Several California cities have lost such challenges and ended up owing ratepayer refunds.
Grants are real but mostly capital-side. State and federal grants almost always fund specific construction projects or one-time programs, not ongoing operating expenses. Recent Lodi examples — the $10.6 million Access Center grant, the California ARCHES Hydrogen Hub allocation, Northern San Joaquin 230 kV transmission funding, IBank loan eligibility — all fund specific capital projects. They help the long-term picture but don't reduce the operating budget gap. Operating grants do exist, but they're competitive and typically tied to specific programs (homelessness response, public health, library services), not General Fund support.
Reducing what the City spends
This is the category where tools actually shrink the underlying gap rather than just covering it for a year.
Shared services with San Joaquin County or neighboring cities (Stockton, Galt, Lockeford, Manteca) can produce real ongoing savings — joint 911 dispatch, shared specialty equipment, regional fire authority arrangements, joint information technology, joint purchasing. The challenge is political: these agreements typically require multi-year commitments and trust-building that survives changes in Council and management. Public-private partnerships work for specific functions: library outsourcing is a documented California model, animal control is already partnered in Lodi, parking management can be contracted out. Every partnership transfers some control along with the cost.
Vacancy savings and position freezes deliver immediate cost reductions without firing anyone, which makes them politically easier. The downside is real: workloads pile onto the remaining staff, leading to departures that make the problem worse. Over time, a vacancy policy can also drift into something else — positions that stay open year after year, listed in the budget but never actually filled. That's quietly a service cut, and it's harder for residents to see than an open decision about which services the City has stopped providing.
Pension prepayment and the CalPERS "fresh-start" option may sound backward — pay more now to save later — but the math works out for cities with cash on hand. CalPERS offers a "fresh-start" arrangement that resets the City's pension payback schedule. Payments are higher in the short run, but the total cost over the life of the schedule comes out lower. Separately, paying the annual CalPERS bill in full at the start of the year (rather than monthly) earns a 3-4% discount. Both options require cash the City may not have available when budget pressure is already squeezing other priorities.
Pension Obligation Bonds (POBs) get proposed periodically as a way to pay down pension debt by issuing bonds — basically refinancing the pension obligation at the bond market interest rate. The math works when CalPERS investment returns exceed the bond rate; it fails when returns underperform. California cities have had mixed results: Stockton issued POBs before its bankruptcy and they made the situation worse; other cities have benefited modestly. With current bond rates in the 4-5% range and CalPERS assuming 6.8% returns, POBs could work for cities with strong credit ratings. But the risk doesn't disappear — the City stays on the hook for both the bond payments and any new pension debt from a future market downturn. POBs trade pension risk for bond risk; they don't eliminate risk.
Options that need voter approval
California Proposition 218 governs how cities raise local revenue. A general tax (money going into the General Fund for any city purpose) needs simple-majority voter approval at a regular election. A special tax (dedicated to a specific purpose) needs two-thirds approval. The list of tools includes parcel taxes (charged per property), a local sales tax added on top of the state rate, increases to the hotel tax (Transient Occupancy Tax), changes to the business license tax, utility users taxes, real property transfer taxes, and — where state law allows and the city's policy permits — cannabis excise taxes.
A Lodi-specific note: cannabis tax revenue isn't currently available because Lodi prohibits commercial cannabis dispensaries within city limits. If the Council reversed that prohibition and Lodi voters then approved a tax measure, the revenue could be meaningful — comparable California cities see $3-7 million per year from cannabis taxes — but the underlying policy debate about dispensaries is substantial and separate from the budget question. The cannabis option exists; whether to pursue it is a values question this article does not take a position on.
Special districts offer a path that doesn't require a citywide election. A Community Facilities District (often called a Mello-Roos district, after the legislators who created the tool in 1982) can fund infrastructure and certain services within a specific geographic area — with the approval of the property owners inside that area, which is typically easier to get than a citywide vote. A Business Improvement District funds marketing or services through assessments paid by the businesses inside it; the Lodi Winery BID, launched January 1, 2026, is the recent local example. Landscape and Lighting Districts fund neighborhood services like landscaping and street lighting through assessments on the residents who benefit. These tools work because they direct specific costs to specific beneficiaries. For that same reason, they don't generate large amounts of revenue that flow to the General Fund.
Growing the tax base over time
The Economic Development Strategic Plan (adopted February 18, 2026) and the Downtown Specific Plan (still being developed, with adoption expected during 2026) fit here. Their potential General Fund impact at full maturity is real — estimated at roughly $1.4 million per year for the EDSP and $700,000 per year for the DSP, based on modeling of the revenue contribution of each plan's specific actions. But hitting those numbers requires three things to hold true. The plans have to target the right outcomes (their goals have to be the right goals). The revenue projections under each action have to be achievable in practice (not just on paper). And the planned actions have to actually deliver what they're aiming for — new businesses opening, new construction breaking ground, new visitors coming to town. These tools are slow and uncertain, but they're the only category that actually addresses the underlying gap rather than just cushioning it.
Temporary problems versus ongoing problems
One distinction makes the whole toolkit easier to think about: the difference between a temporary budget gap and an ongoing one.
A temporary gap is like a household that gets hit with an unexpectedly large repair bill or a few weeks without a paycheck. Uncomfortable, but manageable — you dip into savings, cut back for a while, and put the savings back when things return to normal. Cities call this a "cyclical" deficit, because it comes and goes with the economic cycle. The fix is also temporary: draw on the Economic Reserve, postpone some spending, wait it out, then refill the reserve when conditions improve.
An ongoing gap is more like a household whose monthly bills have permanently grown faster than monthly income. Every paycheck falls a little short, every month, for the foreseeable future. Cutting back for a few weeks doesn't fix this — the math doesn't change just because you wait. Cities call this a "structural" deficit. The fix has to be structural too: permanently more income, permanently less spending, or some combination of both.
Why this distinction matters for Lodi: The City's reserve policies, standard municipal finance practice, and bond rating agencies all treat the two cases differently. Reserves are designed for temporary problems. Using them to cover an ongoing gap drains them without solving anything. Lodi's gap is the ongoing kind. The City's published forecast projects annual shortfalls of $1.63M, $995K, $972K, $945K, and $930K through FY 2030-31 — driven by rising pension costs, salaries growing faster than revenues, and the steady drawdown of the Pension Stabilization Fund. There is no economic recovery on the horizon that closes this gap on its own.
Drawing the Economic Reserve to cover FY 2026-27 would buy one year. Drawing it to cover the full five-year gap would empty it — and leave the City with nothing for the actual recession that would qualify as the temporary kind of problem the reserve was built for. The Catastrophic Reserve isn't an option either. Its rules require a qualifying disaster event (an earthquake, a major fire, a declared emergency), not a budget gap. Trying to use it for budget management would conflict with the reserve's purpose, the City's adopted policy, and standard practice across California.
What this means for the next budget cycle
Three practical implications.
First, drawing from the Economic Reserve is the natural first move for cushioning the FY 2026-27 budget — but it can't be the only move. Reserve draws need to be paired with longer-term measures that close the underlying gap. Drawing reserves without a structural plan just delays the moment when service cuts or new revenue become unavoidable, with less margin to handle them when that moment comes.
Second, decisions are better when the full toolkit is on the table rather than just cut-or-tax. Some tools (fee adjustments, vacancy management, capital deferrals, changing how the City charges its own utilities for shared overhead) are entirely within Council control. Some (sharing services with the County or neighboring cities, paying CalPERS early to capture a discount) need agreement with outside partners but not voter approval. Some (new taxes, reversing the cannabis prohibition) need voter approval but bring in more revenue. The realistic path forward draws on all five categories — not just one or two. Picking a single category and ignoring the rest produces worse decisions than working across the whole toolkit.
Third, it's worth being honest that the revenue side of the debate faces real constraints too — not just the cuts side. The non-tax revenue tools (user fees, interfund transfers, cost recovery adjustments) have meaningful but bounded additional capacity, and what's left is modest relative to the size of the structural gap. The voter-approval tools face genuine political uncertainty. Lodi voters approved Measure L in 2018, a half-cent sales tax dedicated to police, fire, and parks, which suggests local appetite does exist for tax measures tied to specific, visible priorities. But closing a general structural deficit is a harder sell than funding particular services, and no general tax measure has been put before Lodi voters in recent years to test that ground. The cannabis tax option requires reversing the dispensary prohibition first — a separate multi-year policy debate. The long-term base-building tools (the EDSP and DSP) take years to mature and depend on plan execution that is still in early stages. None of this argues against putting revenue options on the table; they belong there. But just as the cuts side of the debate runs into practical and political limits quickly, so does the revenue side. There is no obvious high-probability path to closing the gap on revenue alone, any more than there is on cuts alone.
The budget book is the authoritative source for the numbers in this article. The City's adopted reserve policy is the authoritative source for what each reserve can actually be used for and under what circumstances. This piece pulls the categories together so that public conversations and Council debate can engage with the real menu. The City's own documents control the specifics.
LodiEye is the investigative research arm of Lodi411.com, a citizen-run civic data and transparency platform serving Lodi, California and San Joaquin County. LodiEye is not a traditional news outlet. It does not employ professional journalists or reporters, and the people behind it do not hold journalism degrees or have professional newsroom experience. LodiEye is best understood as civic research and analysis — not peer journalism — and is not a substitute for the local and regional news organizations that do this work professionally. For traditional reporting on Lodi, San Joaquin County, and the broader region, readers are encouraged to consult the Lodi News-Sentinel, Stocktonia, The Sacramento Bee, CalMatters, and other established news outlets staffed by credentialed journalists.
This LodiEye explanatory piece was produced using artificial intelligence tools under the direction and review of the founder. Lodi411 uses multiple AI platforms in its research and publication workflow, including Anthropic's Claude (primarily Opus and Sonnet models) and Perplexity AI across a variety of large language models offered by each. These tools were used in the following capacities:
Source Discovery: AI-assisted search and retrieval identified the FY 2025-26 Adopted Budget Book reserve trajectory, the February 2026 Finance Committee minutes, the May 6, 2026 Council Study Session agenda (Item G.7), California Proposition 218 statutory provisions, Government Finance Officers Association reserve guidance, and California Public Employees' Retirement Law (PERL) requirements governing CalPERS contributions. Perplexity AI was used for initial source discovery and current-event verification; Claude was used for deeper analysis of budget documents and California municipal finance frameworks.
Credibility Validation: AI cross-referenced reserve balance figures, authorization thresholds, and qualifying conditions across multiple independent sources, prioritizing City of Lodi adopted budget documents first, GFOA published guidance and ratings-agency methodology second, and standard California municipal practice third. Multiple AI models independently verified the Proposition 218 general-versus-special tax distinction and the structural-versus-cyclical deficit framework that anchors the article's central argument.
Analysis and Synthesis: Claude Opus and Sonnet assisted in organizing the toolkit into five categories (one-time tools, non-tax revenue, structural cost-side, voter-dependent, long-term base-building), developing the five-column reserves comparison table, and articulating the structural-versus-cyclical framework. Tool-specific trade-off analysis (Pension Obligation Bonds, fresh-start amortization, shared services, cannabis tax) was developed collaboratively.
Presentation: Claude assisted in drafting, structuring, and formatting the article for clarity and readability, including the reserves comparison table, the callout box highlighting the structural-versus-cyclical distinction, and the section sequencing that moves from one-time tools through long-term base-building.
Final Review: Multiple AI models reviewed the completed draft for factual consistency, source attribution accuracy, logical coherence, and balanced presentation. All editorial judgments, analytical conclusions, and publication decisions were made by the human editor.
Lodi411/LodiEye believes transparency about AI use serves both readers and the broader information ecosystem. Readers who spot errors are encouraged to write editor@lodi411.com so corrections can be made.